Tall on gaon, short on jobs, but some long-term thinking
It was with some flourish that Finance Minister Nirmala Sitharaman delivered her maiden Budget. Evoking the vision of Prime Minister Narendra Modi, she said India will become a $3 trillion economy this year, and a USD 5 trillion one in a couple of years. However, the growth orientation required to reach that goal is not convincing. To her credit, Finance Minister Sitharaman has kept to the Gaon, Garib, aur Kisan script. For rural housing, she said the target would be to generate 1.95 crore homes over the next four years to achieve ‘Housing for All’ by 2022.
There is also the commitment to reach piped water to all by 2024 and the creation of a ‘Jal Shakti Mantralaya’ to make it possible. Infrastructure will see a big boost with 1.25 lakh kilometres of roads to be built, and a similar length to be upgraded, with an allocation of Rs 80,000 crore. Housing and road construction will generate substantial jobs,; but the pre-Budget expectation of boosting jobs by providing tax benefits for corporates spending on new hiring has been belied. Dominating the post-Budget discourse was the punch in the solar plexus she delivered to the super-rich.
The FM has hiked income tax on those earning Rs 2-5 crore a year by 3 per cent to 38 per cent and those in the above-Rs 5-crore slab by 7 per cent to 42 per cent. Singling out the miniscule 0.7 per cent overtaxed creamy layer evoked protests from bankers and fund managers on television networks. They have pointed out that instead of spreading the tax net the government was committing the same mistake governments have made over decades of milking an overworked cow.
This could dry out investments and crimp creative entrepreneurship. On the other hand, internationally, higher slabs of taxation for the very rich is the norm and this move is a winner on optics. For the masses, the ‘Robin Hood’ tax will be seen as the Modi government’s commitment to protect the poor. There is some long-term thinking in the Budget too. The economy is going to be facing headwinds in the near future with slowing trade, rising protectionism, the US-China trade conflict and US sanctions against Iran, Venezuela and others. A mix of new policies and schemes in the Budget are therefore aimed at providing necessary financial cushion to withstand the shocks.
An outlay of Rs 70,000 crore has been provided to recapitalise banks, generate credit and keep growth on the agenda. The FM, by bringing housing finance companies (HFCs), earlier monitored by the National Housing Bank (NHB), under RBI, has opted for tighter control. To raise revenue for the government, public sector disinvestment has been defined as ‘priority’ with the disinvestment target upped to Rs 1.05 lakh crore. Again to attract foreign investment, listed companies have to increase their public float from 25 to 35 per cent. And in an important change of direction, our low sovereign debt (just 5 per cent of GDP) has been cited as a reason to begin borrowing in foreign currency.
This could have serious consequences as it opens up the economy to the vagaries of international finance, something we have protected ourselves from so far. Scratching the surface, one can also discover it is not all gaon and garib. Instead of passing on the lower international prices of petroleum products, the FM has chosen to add an additional rupee as excise on diesel and petrol. This is a signal that cost of living may creep up. She has also slipped in a hike on customs duty on a whole slew of products like gold and precious metals which will make life of the common man more expensive.
On the other hand, it is commendable Sitharaman has pushed hard for affordable housing. Realising the flagging housing market has become a drag on the economy, she has increased interest deduction on home loans from Rs 2 lakh to Rs 3.5 lakh for houses for purchase of the first home worth up to Rs 45 lakh. She has also for the first time promised to develop rental housing as a distinct segment. What has however vanished from the scene are ‘smart cities’. A holistic development of Urban India is an obvious miss.